money·2 min read

Wait, What’s the Difference Between Net Pay and Gross Pay?

accessibility, woman opening paycheck
Design: theSkimm | Photo: Getty Images
Jul 11, 2022

If you’re on a job search, you’re probably already familiar with gross pay. That’s the salary listed on your job offer, and the one that usually comes up in negotiations. But it isn’t the only number you should know. Net pay and gross pay are both need-to-know amounts when it comes to your income. For different reasons.

What is net pay?

Aka take-home pay, net pay is your gross pay minus any deductions from your employer and the government. Read: insurance. So it’s the amount of money you actually have to spend, save, and invest.

What is the difference between gross pay and net pay?

Gross pay is the total amount you make. Not the amount you should include in your budget template, though. That’s when you need to use net pay. 

Design: theSkimm

So why do I need to know my gross pay?

It may not be a part of your daily budgeting, but you still need to know your gross income. Because lenders use this number to determine loan amounts. Think: auto loans and mortgages. Psst..higher gross means higher tax liability, too.

How do I calculate my gross pay?

Remember, gross pay is your total income. If you’re an hourly employee who gets paid biweekly, you would multiply your hourly wage by the number of hours you work within a pay period. The answer is your gross pay. Example: $15 (hourly rate) x 80 (number of hours worked)=$1,200 (gross pay).

If you’re a salaried employee, your gross pay can be calculated by dividing your annual salary by 52 weeks (if you’re paid weekly). Psst…your annual gross pay also includes the extras, like your bonus. 

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Your paycheck comes with two different figures you should know for different reasons. Net pay is the income amount to use for your budget. But when it’s time to crush major money goals, knowing your gross pay helps.

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